The real estate market of today looks quite different from last year. With further rate increases and low auction clearance, we can expect Sydney’s median property price to decline further as more homes hit the market.
Real estate prices effectively perform in a free market, which means the end price is negotiated between a willing buyer and a willing seller. The supply and demand will alter the equilibrium and cause them to rise or fall.
In other words, in a seller’s market where the supply decreases, prices will rise; in a buyer’s market, the supply increases and demand decreases, prices will fall.
There are a number of factors that have driven up the demand for housing, and in particular for home ownership, in recent years.
What does high inflation mean for the Australian housing market?
ABS figures showed the highest annual rate of inflation in June 2022 in almost 32 years. As we head into the new financial year, annual inflation is expected to peak at over 7%, according to the Treasury and the RBA. This means household budgets will be tighter, savings will be reduced and housing demand will likely be lower.
Affordability of housing
The household income determines your purchasing power. This is why the demand for housing increases during periods of economic growth and shrinks during a recession.
Buyer confidence
Housing demand depends on people’s confidence in the future of the housing market and the economy at large. When people expect prices to rise, demand for housing increases as more people attempt to make the most of their wealth.
Interest rates
Many economists believe that steeper rate hikes have resulted in faster property price falls. Sydney recorded the largest fall and saw a 3.2 per cent rolling month change in all property asking prices after the cash rate was increased by 0.85 per cent.
Finance availability
The readiness of banks to lend to home buyers is another factor that determines home prices in Australia.
There is a rule of thumb that banks may be willing to lend up to three to five times an applicant’s annual income, but there are a number of specific factors that will influence your borrowing power, such as your income and expenditure and any debts you might have.
According to an Australian Institute of Health and Welfare (AIHW) report, about 11.5% of households spend 30% to 50% of gross income on housing costs in 2017–18, with another 5.5% spending 50% or more.
Economic growth
Economic growth translates to rising incomes, meaning that more people will be able to invest in housing. This will increase the demand for housing and push up real estate prices.
Long Term Factors
While the above factors can shift rapidly – a drop in interest rates can spike prices in a matter of months – there are other long-term factors that impact housing prices as well, such as the number of Australian households, which is projected between 12.6 and 13.2 million in 2041 with a population that is expected to grow to approximately 41.5 million by 2061.
Family homes and oversize apartments in good locations are continuing to experience high demand.
If you’d like to find out more about the property market in Sydney’s Eastern suburbs, get in touch with our team today.